Has there been a more influential CFO in retail than Richard Galanti from Costco?
Galanti worked on Costco’s Series A when he was a young banker at DLJ. The company offered him the job as VP of Finance and he joined in 1984 and was promoted to CFO 10 months later, at 28 years old. He held the title for 39 years and announced his retirement at the beginning of this year.
In that time, Costco:
- went from 4 stores to 876 including expanding to 13 countries
- grew annual sales to $250 billion
- employs 316,000 people
- has 130 million cardholders representing 73 million households
- has a $317 billion market cap
So, what lessons can we learn from a legend?
1/ stay true to your culture
In Galanti’s words, “The underlying culture of the company hasn’t changed. It is what the founders wrote, the five things that you’re going to do, in this order:
- Obey the law
- take care of your customers
- take care of your employees
- respect your suppliers — be tough, but fair.
- Then, reward your shareholders
2/ stay true to why customers love you
"If you raise [the price of] the effing hot dog, I will kill you," Sinegal told his successor. "Figure it out."
I don’t think you can find an article or video about Costco that doesn’t mention the $1.50 quarter pound hot dog and soda meal and then mentions the story of what the founder Jim Sinegal said when his successor and then CEO was grumbling about how much they were losing on that meal combo.
Costco figured it out by building their own hot dog plant.
What you might not know is how ruthlessly Costco adheres to its mark up strategy. The company has an internal cap on the markups it will take on a product—15% for Kirkland Signature products and 14% for any others. Supermarkets tend to work on a mid- to high-20% markup, analysts said. The amount of gross margin the company has left on the table for customers benefit over the decades is staggering.
3/ Know the numbers
A pet peeve of mine with scaling DTC is they often lack comprehensive and frequent attention to the numbers that really drive the business.
Costco doesn’t make that mistake and they are worth emulating. Again Galanti “every four weeks we have a day-and-a-half budget and business review meeting where we update the numbers and, more importantly, review what’s going on with our business. Managers from all over the world come in. About 150 of us are in the same room.”
First of all, it’s super impressive that the execs are flying in 12 times a year for this.
Second, the frequency is important. It’s not once a year or once a quarter, it’s every 4 weeks!
And lastly, this isn’t a two hour zoom, it’s a day and a half effort.
4/ Reduce and focus
Costco has 3,800 SKU’s whereas typical supermarkets and discount super centers will have 50,000 to 100,000.
Costco has 12 - 25X fewer items than their competitors! I love this last learning because this simple concept has self-reinforcing benefits such as (a) “our buying power per item dwarfs anybody out there,” and (b) lower labor costs as shelves can be restocked by a forklift operator putting down a pallet with 2,000 cans and ripping off the plastic as opposed to stocking and arranging each can by hand
For some additional reading and viewing, check out: